Stock Futures Plunge; Mortgage Rate Fears Rise
NEW YORK ( TheStreet) -- U.S. stock futures were plunging Thursday as Treasury yields soared and the international markets weakened across multiple asset classes as anxieties grew over the possibility that the Federal Reserve will start moderating its stimulus for the U.S. economy very soon. Americans worried about how a tapering of stimulus would impact mortgage rates.
The market remained in the red after jobless claims came in higher than expected.
"I think the possibilities of the Fed trimming in the later part of the fourth quarter of this year is a given factor, and I suspect the markets are now adjusting to life without stimulants which is creating an overreaction in the markets," Peter Cardillo, chief market economist at Rockwell Global Capital in Manhattan, said in an email. "On the other hand, the steeper yield curve is reflecting a fight from the treasury market, as implications from the future rebalancing of the Fed balance sheet and an improving economic outlook come into play. However, the expansion in the housing sector is likely to continue, but at a slower pace as mortgage rates increase."
Futures for the S&P 500 were slumping 14.25 points, or 12.53 points below fair value, to 1,609.5. Futures for the Dow Jones Industrial Average were dropping 101 points, or 88.19 points below fair value, to 14,946. Futures for the Nasdaq were declining 25.25 points, or 21.80 points below fair value, to 2,931.
Major U.S. stock markets turned sharply lower on Wednesday as the Federal Open Market Committee voted to maintain its current policy of buying $85 billion per month by a vote of 10 in favor and 2 against but outlined criteria which will determine when the bank begins to reduce the size and scope of its bond buying program. The Fed noted that its U.S. growth outlook has improved and suggested that it could begin winding down stimulus measures as early as this year.
The Labor Department reported Thursday that initial jobless claims increased by 18,000 to a higher-than-expected 354,000 in the week ended June 15. Economists were predicting a rise to 340,000. The four-week moving average on initial claims also rose, up 2,500 to 348,250.
"Claims rose further than forecast and edged above our line in the sand that denotes payroll improvement," Andrew Wilkinson, chief economic strategist at Miller Tabak, wrote in a note. "The increase of 18,000 to 354,000 is taper-negative but is so granular at this point it is highly unlikely to shift the needle in the big scheme of things."